Trinity Capital - Earnings Call - Q1 2025

Transcript

Operator (participant)

Good morning. My name is Katie, and I'll be your conference operator today. At this time, I would like to welcome everyone to Trinity Capital's first quarter 2025 earnings conference call. All participants have been placed in a listen-only mode, and the floor will be open for questions following the presentation. It is now my pleasure to turn the call over to Ben Malcolmson, Head of Investor Relations for Trinity Capital.

Ben Malcolmson (Head of Investor Relations)

Thank you, and welcome to Trinity Capital's earnings conference call for the first quarter of 2025. Today, our speakers are Kyle Brown, Chief Executive Officer, Michael Testa, Chief Financial Officer, and Gerry Harder, Chief Operating Officer. Also joining us for the Q&A portion of the call are Ron Kundich, Chief Credit Officer, and Sarah Stanton, General Counsel and Chief Compliance Officer. Trinity Capital's financial results were released earlier today and can be accessed on our investor relations website at ir.trinitycapital.com. Before we begin, I would like to remind everyone that certain statements made during this call may be deemed forward-looking statements under federal securities laws. Because forward-looking statements involve known and unknown risks and uncertainties, we encourage you to refer to our most recent SEC filings for information on certain risk factors. Now, please allow me to turn the call over to the CEO of Trinity Capital, Kyle Brown.

Kyle Brown (CEO)

Thank you, Ben, and thanks to everyone for joining us today. Before addressing the macro environment, we wanted to share some quick highlights from a solid Q1 for Trinity Capital. We delivered $32.4 million in net investment income, a 29% increase versus Q1 of last year. Our net asset value grew to a record $833 million. Platform AUM increased to more than $2.1 billion. Our credit quality remained strong, with non-accruals staying consistent and representing less than 1% of the portfolio at fair value. Trinity paid a first quarter cash dividend of $0.51 per share, representing our 21st consecutive quarter of a consistent or increased regular dividend. Before we dive deeper into Q1 performance, we do want to address macroeconomic and geopolitical conditions that are currently at play.

We've been closely monitoring the recent tariff announcements and have been in discussions with all of our portfolio companies to determine the potential impact on their operational performance. Credit quality is of the utmost importance to us, particularly during periods of market volatility. The portfolio management team is actively engaged with every single one of our portfolio companies to analyze the effects of tariffs, quantify the potential impact across all risk factors, and safeguard the health of our investments. An overwhelming majority of our portfolio companies are domestically headquartered and have very limited exposure to imported goods or international sales. As such, most do not expect a near-term impact to operations as a direct result of tariffs imposed by the U.S. or other countries. Gerry will address the portfolio in greater detail during his portion of the call.

Every investment dollar matters to us, and we have demonstrated in previous periods of market uncertainty that we are committed to finding positive outcomes for our partners and, most importantly, our shareholders. In terms of debt servicing, during this volatile time, almost all of our companies are privately funded by venture capital firms or private equity groups that have dry powder. Additionally, we have not seen an unusual uptick in requests for amendments or delayed payments. Times of volatility can create opportunities as well. As we experienced during the COVID years when we were able to turn macro trials into great pathways of growth for us, we see this as a moment in time to be thoughtfully opportunistic as well. The top of our funnel is expanding, and our underwriting process remains strict as we continue to mature as a best-in-class direct lender to growth-oriented businesses.

We are building an asset management business that is resilient even during the ebbs and flows of the market. Our five complementary business verticals—sponsor finance, equipment finance, tech lending, asset-backed lending, and life sciences—position us to have a diversified portfolio that can be durable regardless of macro conditions. As we continue to expand into the future, we want to emphasize the internally managed structure that we operate under. As an internally managed BDC, our employees, management, the board, we all own the same shares as our investors. This structure creates great alignment with our shareholders as we strive to deliver growing returns for our investors. Additionally, all the fees and incentive fees that come with being an asset manager under the RIA that we own flow to our shareholders, which drives more income, increases our valuation, and grows the platform.

All along, we have said that we're going to out-earn the dividend and grow the BDC, and we continue to do just that. This continued growth is possible for a few reasons. We are positioned well in the private credit space, focused on late-stage VC into the lower-middle market. With regard to our capitalization, we are building the foundation for a managed account business, offering high-net worth and institutional investors access to our growing direct lending business, which offers Trinity Capital new income streams. From a talent attraction and retention standpoint, we are hyper-focused on culture, attracting the best people in the industry as we continue this growth trajectory. Underpinning our culture are six pillars: humility, trust, integrity, uncommon care, continuous learning, and an entrepreneurial spirit.

Three core principles are foundational to us: exhibiting uncommon care for our employees, customers, and stakeholders; serving our clients by being partners rather than just money; and providing outsized returns for our shareholders. We look forward to continuing to create a company that our people, partners, and shareholders are proud of. We are experiencing tremendous momentum right now as we continue to grow a best-in-class platform. Signaling confidence in our platform, subsequent to quarter-end, Moody's assigned us an investment-grade rating attributable to our growing performance record since inception, our relatively low reliance on secured funding sources, and our strong capitalization and liquidity. This rating from one of the most respected agencies will open up access to cheaper capital and a new pool of investors for us.

Turning to our platform performance, we maintain a strong investment pipeline, including $623 million in unfunded commitments as of the end of Q1, leaving us well-positioned for continued portfolio growth in 2025. More than 90% of these unfunded commitments are subject to ongoing diligence and approval by our investment committee. During the quarter, we increased our NAV through net investment income that exceeded our dividend and accretive ATM offerings. The decrease in NAV per share was mostly driven by the impact of the early retirement of the convertible notes in February, which Michael will address in further detail later in the call. This debt extinguishment removes the overhang to our investors, and we firmly believe this payoff will be a net positive for our shareholders in the coming quarters. Credit underwriting and portfolio management ultimately determine our success over the long term.

We have a unique structure of collaboration among our originations, credit, and portfolio teams that manage our inbound opportunities and active portfolio companies. We are very selective and follow a rigorous diligence process, where only a small percentage of our deals reach the underwriting stage. This methodical approach mitigates risk and positions us to excel in all macroeconomic cycles. With that, I'll turn the call over to our CFO, Michael Testa, to discuss our financial results in more detail. Michael.

Michael Testa (CFO)

Thank you, Kyle. In the first quarter, we achieved total investment income of $65 million, a 30% increase over the same period in 2024. Our effective yield on the portfolio for Q1 was once again among the best in the industry at 15.3%, and our core yield, which excludes fee income, remains strong at 14.1%. The decline in our effective yield this quarter was primarily driven by lower fee income from early debt repayments, and in Q1, early repayments were well below our historical average. Our core yield reflects the full quarter impact of 50 basis point Fed rate cuts from the prior quarter. Net investment income for the first quarter was $32.4 million, or $0.52 per basic share, compared to $25.2 million, or $0.54 per basic share in the same period of the prior year. Our net investment income per share represents 102% coverage of our quarterly distribution.

Our estimated undistributed taxable income is approximately $67 million, or $1.04 per share. We continue to reinvest this capital for the benefit of our investors while maintaining a consistent and meaningful distribution. Our platform continues to generate strong returns for our BDC shareholders, with ROAE of 15.5% based on net investment income over average equity and ROAA of 7.1% based on net investment income over average total assets. As of March 31, 2025, our NAV was $833 million, up from $823 million as of December 31, 2024. Our corresponding NAV per share was $13.05 at the end of Q1, a decrease from $13.35 at the end as of December 31, 2024. As Kyle explained, the decrease in net assets per share was primarily due to the repayment of convertible notes during this quarter.

The holders of our convertible notes elected to exercise their conversion rate on the $50 million of notes during Q1. At our option, we elected to use cash to retire the notes and avoid the impact of further dilution by issuing shares of our common stock. These notes were fully liquidated with available proceeds received from early debt repayments, equity gains, and the use of our credit facility. While the convertible note repayment caused an impact on NAV per share in the first quarter, the early conversion of these debt obligations, which were issued prior to our IPO, reflects a strong performance of the Trinity platform and will be a long-term benefit to Trinity shareholders. Additionally, $152.5 million of our 2025 notes matured in January and were repaid in full. As a result of these debt extinguishments, we have no further debt obligations due until August 2026.

As Kyle mentioned earlier, we received a Baa3 investment-grade rating with a stable outlook from Moody's. This rating is further validation of our underwriting track record, strong performance, and our increased scale in business diversification. The recent payoff of past debt, coupled with the ability to access the capital markets, positions us effectively to capitalize on new opportunities in the coming quarters. During the quarter, we enhanced liquidity by raising $31 million of proceeds from the equity ATM program, at an average premium to NAV of 17%, and we raised $4 million of gross proceeds from our net debt ATM program, all at a premium to par. We also continue to realize the benefits of our co-investment vehicles, which in Q1 provided approximately $2.2 million, or $0.03 per share, of incremental net investment income benefit to the BDC. During Q1, we syndicated $35 million to these vehicles.

As of March 31, 2025, we had over $320 million of assets under management in these private vehicles, providing incremental capital for growth and accretive returns to our shareholders. Our net leverage ratio, which represents principal debt outstanding plus cash on hand, was 1.15x as of March 31, 2025. Our strong liquidity position with diverse capital sources, both from capital raised by the BDC and through our wholly owned RIA subsidiary, provides Trinity with the flexibility to manage a strong pipeline and be opportunistic in the marketplace. I'll now turn the call over to our COO, Gerry Harder, to discuss our portfolio performance and platform in more detail. Gerry?

Gerry Harder (COO)

Thank you, Michael. I'd like to begin by expanding on Kyle's remarks regarding the impact of tariffs on both our portfolio companies and our business processes. Over the past several weeks, our portfolio management teams have reached out to all of our portfolio companies to better understand the potential impact of tariffs on their business models and financial projections. Based on these discussions, we believe that our portfolio has very limited direct exposure to the impact of tariffs, and we are remaining in close contact with our portfolio companies as they navigate through the economic impact of the evolving trade policies. We have also added an additional process step to our underwriting flow to ensure that we have a clear understanding of potential direct or indirect tariff risks before any funding is released to either new or existing portfolio companies.

As a reminder, a vast majority of our unfunded commitments are subject to ongoing diligence and approval by our investment committee. We will continue to follow these additional processes related to tariffs for as long as necessary to ensure that we are deploying our capital in a prudent fashion. Turning back to the general composition of the portfolio, at the end of the first quarter, on a cost basis, our total portfolio consisted of approximately 75% secured loans, 19% equipment financings, 4% equity, and 2% warrants. The composition of our portfolio continues to be diversified across investment type, transaction size, industry, and geography. Our portfolio is segmented across 22 industry categories, with our largest industry exposure, finance and insurance, representing 16.9% of the portfolio at cost. This portion of the portfolio is spread across 16 borrowers and includes both term loans and asset-backed warehouse facilities.

Our second largest industry exposure is medical devices, representing 12.3% of our portfolio at cost and spread across 11 borrowers. Across our five business verticals, the approximate breakdown of our fundings in Q1 was as follows: 38% to equipment financing, 29% to life sciences, 18% to sponsor finance, 10% to tech lending, and 5% to asset-backed lending. As of the end of Q1, our largest portfolio company debt exposure represents 4% of our debt portfolio and 3.7% of our total portfolio on a cost basis. Our 10 largest debt investments collectively represent 23.4% of our total portfolio on a cost basis. Now turning our attention to credit. The credit quality of our portfolio remained consistent quarter over quarter, with approximately 99.1% of our portfolio performing on a fair value basis.

Our average internal credit rating for the first quarter stood at 2.9 based on our one-five rating rating system, with five indicating very strong performance. This rating is consistent with the average credit rating in each of the last three quarters and is attributable to strong originations of new credits within the first quarter and excellent work by our portfolio management team with existing portfolio companies. As a percentage of the debt portfolio on a cost basis, credits within the lowest two tiers improved slightly as compared to Q4. Quarter over quarter, the number of portfolio companies on non-accrual remained consistent at five. During Q1, one additional portfolio was added to the non-accrual list, while one existing non-accrual was realized in the quarter. Subsequent to quarter end, an additional non-accrual credit was realized at the Q1 fair value.

At the end of Q1, our non-accrual credits had a total fair value of approximately $15.2 million, representing 0.9% of the total debt portfolio, a very slight increase as compared to the fourth quarter. At quarter end, 78% of our total principal outstanding was backed by first-position liens on enterprise, equipment, or both. For our financings covered under all asset liens, the weighted average loan-to-value as of the end of Q1 was 23%, while 53% of our portfolio companies have a loan-to-value of less than 15%. These statistics demonstrate that our portfolio companies are generally not over-levered and are in a healthy position to service the debt, even in instances where our loan may not be in first position. In Q1, our portfolio companies collectively raised more than $900 million of equity. Our portfolio is strong and continues to be able to secure funding even in a challenging market.

In closing, we want to emphasize that our credit quality and portfolio management are of the utmost importance to Trinity. One of Trinity's hallmarks is that our staff members think and operate like shareholders, and we always strive for resolutions that benefit both our investors and our partners. Before we conclude our call, we would like to open the line for questions. Operator?

Operator (participant)

Thank you. At this time, if you would like to ask a question, please press Star one on your telephone keypad. You may remove yourself from the queue at any time by pressing Star two. Once again, that is Star one to ask a question. We'll pause for just a moment to allow questions to queue. Thank you. Our first question will come from Casey Alexander with Compass Point. Your line is open.

Casey Alexander (Equity Analyst)

Yeah. I'm just kind of hoping you can point me in the right direction here. I mean, the fourth quarter had a 3% increase in portfolio investments, interest-earning portfolio investments. And then you were a net originator again in this quarter, and yet interest income dropped about 5% quarter over quarter. Can you give me some color and point me in the right direction for me to help me understand why it would drop quite that much?

Kyle Brown (CEO)

Hey, Casey. A couple of things. One, we saw the effects of that rate cut last year, kind of moved through the portfolio. I think we're actually in a really great position going forward as it relates to rate cuts and having the majority of our portfolio really already at kind of base floor rates. We feel good about that. There were some effects of that rate cut. We also saw a pretty strong decrease in payoffs, and that resulted in a few cents less of earnings than we typically see in just pull forward fees. Those two things right there, that was the majority of the decrease.

Casey Alexander (Equity Analyst)

Okay. A fast follow-on to that, how do you see generally when you get into a more uncertain environment, payoffs slow down even more? Would that be your expectation that we would see a slowdown in payoffs at least in 2Q and 3Q while the market is digesting kind of the new economic format?

Kyle Brown (CEO)

Yeah. You know what? In Q1, I think that's a lot of the delays or kind of regular payoffs, they were pushed to this quarter. Subsequent to quarter end, we've already received our normal payoffs that we see in a quarter. You will see that bounce back. We also have other payoffs pending. We cannot predict how that will play out. Already, we've seen normal payoffs this quarter, which will obviously help with earnings.

Casey Alexander (Equity Analyst)

All right. That's great. That's good information. Thank you, Kyle.

Kyle Brown (CEO)

Yep. Thank you.

Casey Alexander (Equity Analyst)

My last question is that medical devices is a pretty substantial portion of the portfolio. In talking to people, what I've been told is that a large percentage of the components that goes into medical devices actually does come from Asia. Can you comment what your investigation into tariff impacts found specifically relative to medical devices?

Ron Kundich (Chief Credit Officer)

Hey, Casey. This is Ron Kundich. Good question. As Gerry alluded to in his prepared remarks, we took an extremely deep dive into the portfolio all across the board. I can report that our life science portfolio received significant feedback from their companies, even quantified feedback from many companies around the impact of tariffs and, specific to your question, the impact on tariffs with regard to their supply chain. There were no alarming findings. I hesitate to give you any specifics here on this call, but it was very good. I classify our tariff impact within the portfolio as low, "low," as Gerry alluded to in his prepared remarks. Ongoing review, ongoing analysis. Gerry.

Gerry Harder (COO)

The only thing I'd add, and while I have no doubt that what you say is true, Casey, with respect to the components, medical devices generally tend to be higher margin devices where the subcomponent costs are just not a big part of the overall labor burden and material product costs. That is why I think the quantified impact for the med devices tends to be low.

Casey Alexander (Equity Analyst)

All right. Thank you for taking my questions. Appreciate it.

Kyle Brown (CEO)

Thanks, Casey.

Gerry Harder (COO)

Thank you.

Operator (participant)

Thank you. Our next question comes from Doug Harter with UBS. Your line is open.

Cory Johnson (Analyst)

Hi. This is Cory Johnson calling for Doug. This quarter, excuse me, sorry, this quarter, commitments were at a slowest pace that they've been in a while. Can you talk just a little bit about what was behind that? Is that timing, changes in the market, any business decisions at Trinity?

Kyle Brown (CEO)

I want to make sure I heard you right. Did you reference commitments, funding commitments? Yeah.

Cory Johnson (Analyst)

Correct.

Kyle Brown (CEO)

Listen, we took a page out of our COVID playbook. When you see large kind of macroeconomic conditions deteriorate or change, it's really important for us to focus on our portfolio first, kind of take a defensive stance, understand where the wind is blowing and what's going on is going to impact businesses, and then really invest into companies that are benefiting from it. We did just that. We slowed some of our originations efforts. We had to make sure that we put a new filter in place so that any deal that we were looking at funding, any new deal in the pipeline, we understood the effects of tariffs and whether or not we wanted to fund that company.

We had to apply sensitization from a credit standpoint to each of those companies to make sure that they still had the cash life or EBITDA or cash flow that we thought they had. What that meant was us slowing down and funding a little bit less in Q1. Those deals did not go away. The pipeline is robust. It is growing. We have significant deal flow right now. It has led us into Q2 with an understanding of who is benefiting from it and who is not and giving us a really interesting point to invest in these companies going forward. Anyway, commitments are down simply by choice. We are still monitoring what is going on, but that is not a trend.

Cory Johnson (Analyst)

Got it. Would you say now that you've kind of been able to assess things and you feel a bit more comfortable in that commitments will go back up in 2Q, or are you still playing it a little bit more defensively?

Kyle Brown (CEO)

There are certain segments we've already identified that are benefiting from this. We have seen within Q1 and carrying into Q2 pretty significant uptick in CapEx spend for companies that manufacture in the U.S. Our equipment business is poised to benefit from that. You saw that with nearly a third of our deployments in Q1 were equipment, over a third. I don't think that's going to slow down. That's a great differentiator for us as a lender. We can look at that and say, "Great. We're poised to really benefit from this if it continues." I think manufacturing in the U.S. is a good place to be, and we're really focused on it. I'm not going to tell you that it's going to be 2x or 3x what we did in Q1, but the pipeline is very strong right now.

Cory Johnson (Analyst)

Got it. Thank you.

Operator (participant)

Thank you. Our next question comes from Christopher Nolan with Ladenburg Thalmann. Your line is open.

Christopher Nolan (Equity Analyst)

Hey, guys. The common stock is yielding 14.5% or so, which is pretty close to what your core yield is. How does that affect your consideration of raising additional common equity?

Michael Testa (CFO)

Hey, Chris. It's Mike here. Appreciate the question. Yeah. It's something we're modeling. We look at we're only going to raise capital when it's accretive to our investors. So we raised about $31 million this quarter on the ATM. Again, that's an efficient way of raising capital. It's lower than we've done in the past, but we're looking at all the different levers from liquidity on balance sheet to off-balance sheet returns for deploying on balance sheet versus syndicating and raising more capital and the benefit, the accretive benefits we get from those fundings being in the RIA. I appreciate, yeah, the modeling exercise and the math for raising capital on balance sheet versus how that trickles down and leverage a number of moving parts to the benefit of our investors.

Christopher Nolan (Equity Analyst)

Great. And then reading into the, I guess, the new vehicles that you guys are raising, the separate managed funds would take a bigger role going forward. How do you guys allocate deals between those separate managed accounts and the BDC?

Kyle Brown (CEO)

We think about the managed accounts as just additional liquidity, right? You kind of just touched on it. Our overall encompassing goal is to grow earnings, grow the dividend. Earn it, out-earn it, and grow. That is our goal. We have said it over and over again. Our managed accounts give us the ability to generate new income. There is a quarterly shuffle that happens and making sure that we do that. Some quarters might mean we need to raise some additional equity, common equity. Right now, and frankly, the rest of this year, a lot of that is focused on raising capital off-balance sheet, private funds, and generating new income there. We meet twice a week. We look at the model.

We try to make sure that we are keeping leverage around that kind of one-to-one mark and over time hoping to decrease that, giving ourselves more liquidity while also increasing earnings. The answer is it's not an exact answer because the output just has to be EPS is stable and growing.

Christopher Nolan (Equity Analyst)

Great. Final question. What do you think the impact will be on the fair value evaluation of your portfolio company investments? I mean, will this increase the base rate, the risk-free rate? And then on top of that, you add the risk premiums. Any color on that would be great.

Kyle Brown (CEO)

Chris, I do not know if I understood the question. The fair value of the entire portfolio in general or investment in the RIA?

Christopher Nolan (Equity Analyst)

No. Each of your investments and your scheduled investments is valued by an outside firm on a periodic basis. How does the tariffs impact the methodology, and does it raise the risk premium of your investments and thus lower your fair value?

Gerry Harder (COO)

Yeah. I think certainly, Chris, in valuing the equity portion of our portfolio, right, that's going to be a function of market multiples as of June 30 when the marks are affected, right? To the extent that trade policies are affecting the markets where our portfolio companies find themselves, that could certainly affect those marks. With respect to the debt portfolio, if we've got performing debt instruments, we're going to value that with a discounted cash flow. I think based on what we know today, I would say it would be unlikely that we would, across the board, add to the discount rate as we value that portfolio. However, another quarter is two months away, and we can't say what may or may not happen. Based on what we know today, we don't think we would need to make such an encompassing portfolio-wide adjustment.

Christopher Nolan (Equity Analyst)

Okay. Thanks, Gerry. Okay. See you guys.

Operator (participant)

Thank you. Our next question comes from Paul Johnson with KBW. Your line is open.

Paul Johnson (Equity Analyst)

Yeah. Good afternoon. Thanks for taking my questions. Kyle, how do you guess, I guess, how do you just think about just the lower yields in the portfolio over the last several quarters? I mean, do you think that's reflective, kind of, your push into a broader origination verticals, including some sponsor-backed deals, or are there sort of other things in there, kind of like lower activity that you might think are the bigger factor?

Kyle Brown (CEO)

Yeah. We have not seen a lot of the compression, I think, across all five verticals combined that I think other BDCs and lenders generally have experienced. The majority of that is the effects of the rates changing. Then us growing our more upstream and more mature sponsor-finance business, which I think investors should be pretty excited about, right? These are more mature companies, less volatility. They really balance out the portfolio. It is pretty minute, but there is some decrease in the yield. I would say, A, it is best in class still. B, we are pretty protected on the majority of the portfolio from additional rate decreases because of those floor rates. C, I would 100% trade the diversification and de-risking of the portfolio for the small change in yield, right?

What this does not take into account, though, is our 100+ warrant positions, right, that are outstanding that we cannot necessarily tell you which one is going to work and when. Those are all options that we have out there right now that can provide some and have historically provided upside that covers any kind of losses that we might expect and then provide additional upside. Those are out there as well.

Paul Johnson (Equity Analyst)

Thanks. Appreciate that. Thanks for over there. I may have missed it on the call, but I was just wondering if you could remind us just how much of the portfolio is sort of first lien without any sort of additional lender or bank ahead of you in the loan.

Ron Kundich (Chief Credit Officer)

Paul, this is Ron again. 78% of the portfolio is first lien, not encumbered by any senior debt. That's a pretty direct answer to your specific question. Happy to elaborate if you have any follow-ups.

Kyle Brown (CEO)

Yeah. In the second lien or sub or mezz layers that we take there, frankly, those are the more mature companies. We take the position of partnering with a bank provides a lower blended cost of capital for the company, and we would be more than willing to be the senior facility. That lower blended cost of capital ends up putting the company in a better position. When we do it, that typically just means that is a more mature company, later stage, better credit quality. We just rarely see issues with those loans.

Paul Johnson (Equity Analyst)

Thanks for that. Once again, very helpful. The last one I had was just I was wondering if you'd seen anything kind of quarter-to-date in terms of revolver draws or liquidity issues or demands from any of your borrowers. That's all. Thanks.

Kyle Brown (CEO)

No. We've not seen an uptick at all with companies requesting capital or looking for additional draws above and beyond. You got to remember, if we do not, in many cases, we actually have milestones in place. A company cannot just call us up and ask for more money. They will have had to have achieved something or hit some milestone to access additional capital. On the majority, the vast majority, I want to say 90% of the outstanding commitments, we have to underwrite the deal and approve it before we will release capital. It is at our discretion.

Operator (participant)

Thank you. Once again, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from Sean-Paul Adams with B. Riley Securities. Your line is open.

Sean-Paul Adams (Equity Analyst)

Hi, guys. Good afternoon. You guys have a pretty good track record of a stable dividend. Congrats on 21 quarters without a cut. This quarter's NII kind of had a narrow margin versus the dividend payout. How committed are you guys when it comes to the dividend or dividend increases? Do you guys currently have any plans to build more spillover?

Kyle Brown (CEO)

Good question. So a couple of things. One, for BDCs, keeping the dividend and not decreasing it, that's BDC 101 right there, right? We are very focused on keeping the dividend and growing the dividend. Our board will meet and decide on whether to keep it or increase it. Our goal internally is to cover the dividend and increase that coverage over time. We had less coverage this quarter for the reasons we've already stated. Payoffs alone account for $0.03-$0.04 of regular earnings per share that we just did not see this quarter. There were a few other things that were just specific to this quarter. Our goal is to build it and grow it.

I think, generally speaking, right now, if we're going to over-earn the dividend and we're still generating a 14% dividend yield, we're clearly not being, our stock is not reflecting its true value in that scenario right there. Increasing the dividend doesn't make a lot of sense because we're not getting a lot of credit for that. Building NAV and focusing on building NAV has been what we've done now for consecutive quarters. We'll probably continue doing that. The board will meet quarterly to decide whether or not we want to build that spillover. At some point, of course, we have to distribute out 90%+ of our earnings. If we are successful doing what I just said, we're going to be forced to send out special dividends at some point to the benefit of shareholders.

That's a problem we really want to have.

Sean-Paul Adams (Equity Analyst)

Got it. Got it. Thank you for the color. When you're looking at forward quarters, if there is a material crunch on the earnings front, how are you looking at the balance of the dividend distribution versus the NAV?

Kyle Brown (CEO)

We feel really good about covering our dividend.

Sean-Paul Adams (Equity Analyst)

Got it. Thank you.

Kyle Brown (CEO)

All right. That was easier than I thought. We feel really good about covering the dividend.

Sean-Paul Adams (Equity Analyst)

Sounds good. I appreciate the color.

Kyle Brown (CEO)

You bet.

Operator (participant)

Thank you. It appears we have no further questions at this time. I'll now turn the call back over to CEO Kyle Brown for closing remarks.

Kyle Brown (CEO)

All right. We'd like to thank everybody for participating in our call today. We appreciate your interest and investment in Trinity Capital. We look forward to updating you on our second quarter results at our earnings call on August 6. Have a great rest of your day. Thanks. Bye.

Operator (participant)

Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.